Free, Efficient Markets Require Green Economic Policy
Insurer calls for tough rules on pollution
The insurance industry understands. They, like other enterprises, can best operate in a world with true costs and efficiency, not hidden subsidies and special non-liability privileges.
by Simon Challis
Carlos Joly, head of the insurance industry's environmental initiative, told Reuters that politicians at the World Summit on Sustainable Development had not listened to proposals from the world's biggest insurers' despite the industry's potential to lead efforts to tackle global warming.
He said political leaders lacked the courage to compel companies to clean up their operations, leaving insurers exposed to the devastating storms which some believe are increasingly common because of rising levels of greenhouse gases.
Insurers have been unable to formally present proposed company reporting standards in Johannesburg, because finance ministries of the big governments seem apathetic, Joly said.
"My general observation about Johannesburg is that politicians and government officials have yet to realise the potential power for change that banks and insurance companies can wield as actors for sustainable development," he said.
Insurers monitor climate closely as they have very large exposures to floods, droughts, storms and hurricanes. Some companies believe such catastrophes have become more frequent because of changing weather patterns.
Insurance companies have warned they will not pay the growing claims resulting from climate change. They will simply exclude paying out claims from events, such as flooding or windstorms, caused by global warming, leaving governments, business and individual taxpayers to pick up the bill themselves.
As a result, insurers have tried to raise awareness of the growing environmental problem and have begun looking at ways they can help the environment by how they run their own companies, under the United Nations Environment Programme's (UNEP) insurance initiative, which Joly chairs.
Some of the world's biggest insurers, including Munich Re, Swiss Re, Gerling, Skandia and Storebrand have taken the lead in considering the impact that carbon dioxide and other greenhouse gases have had on the environment.
But such actions have not been matched by politicians. "These companies have taken the environmental agenda to heart, but have found little encouragement from the political establishment," Joly said.
Insurers who have signed up to the UNEP insurance initiative must report which environmental and social criteria they consider as part of their everyday operations and how they help achieve sustainable development.
Joly said governments and supranational bodies such as the European Commission should pass legislation requiring insurance pension funds and long-term savings schemes to consider how they invest their money affects the environment.
Another way insurers can help tackle climate change is in how they underwrite certain environmental risks. But governments have not made businesses financially liable for their contribution to global warming.
Without this, Joly said, insurers have not been able to promote sustainable development through charging lower premiums to companies that emit fewer harmful gasses.
"The risks from carbon dioxide emissions are not included in any regulations," he said. "As a result those risks cannot be factored into how one prices an insurance policy...That is a gaping hole."
Insurers and investment funds also exert massive influence as the biggest investors in the financial markets and Joly said pension funds should be compelled to report annually how their portfolio choices reflect non-financial considerations.
New "green" reporting standards could prompt companies to challenge for the title of being the most ethical investor, Joly said. "In a competitive world, best practice would win."
Individual countries have taken a few steps in this direction. In the UK, pension funds are required to state whether they have an ethical investment policy, but are not compelled to state what impact that has on their portfolios.
The Netherlands has gone further by offering pension funds tax breaks for investing in environmentally friendly companies in the emerging economies.
Thanks to the Reuters news agency for reporting on this topic.
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